# 62 How are charitable donations and political donations treated on a tax return? Why are they treated this way?

Arvind Harry

Charitable and Political donations create tax credits on an individual’s tax return.  The calculations are as follows:

Charitable Donations (ITA 118.1(1))

For those with taxable income up to the upper federal income threshold (\$210,372 for 2019)

• A federal level credit limit will be 15% of the first \$200 donations

For taxable income greater than the upper federal income threshold

• The credit will be 15% of the first \$200
• 33% of the lesser of the amount that your taxable income exceeds \$210,372 or by the amount your donation exceeds \$200
• This increase is to encourage the wealthy to donate more

This is formulized as (A x B) + (C x D) + (E x F), where:

 A The appropriate percentage for the year (15%) B The first \$200 of the donation C 33% D The lesser of the amount that either your income exceeds \$210,372 or your donation exceeds \$200 (only applicable when income exceeds \$210,372 limit) E 29% F The remaining amount of the donation that surpasses \$200

So, in the formula above, ‘(C X D)’ would only apply to individuals who are taxed at the highest federal marginal tax rate.

Example: John, who has a taxable income of \$50,000 donates \$800 during 2019. His tax credit would be calculated as follows:

15% of the first \$200 = \$30

29% of the remaining \$600 = \$174

\$204 (\$30+\$174) is the amount of his charitable donation tax credit in 2019.

Example: Deepesh has a taxable income of \$312,000, he donates \$16,000 during the year. What are his tax credits for the year?

15% of the first \$200 = \$30

33% of the lesser of (\$16,000-\$200) or (\$312,000-\$210,372) -> \$15,800<\$101,628

33%*\$15,800 = \$5,214

\$5,244 (\$30+\$5,214) is the amount of his charitable donation tax credit in 2019.

An individual can only claim donations up to 75% of their Net Income For Tax Purposes.  Additional amounts can be carried forward 5 years.

Political Donations (ITA 127(3))

The political donation federal tax credit is dependent on the amount donated as follows:

\$1 to \$400: Tax credit equals 75% of the amount (Max \$300)

\$401 to \$750: \$300 plus 50% of the amount > \$400

\$750 to \$1,275: \$475 plus 33 1/3% of the amount > \$750

\$1,275 plus: \$650 maximum

Why are these rates different than other tax credits?

In general, better tax credit percentages (i.e. greater than 15%) are given to donations to encourage individuals (particularly wealthy individuals) to donate.

Interactive content (Author: Emily Hou, January 2020)

References and Resources:

January 2020